Slower credit offtake, margin compression, and elevated provisions to weigh on earnings momentum despite robust deposit growth

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NII and Profit Growth Likely to Remain Modest Amid Margin Stress Loan Growth Slows While Deposits Surge Ahead Net Interest Margins Under Pressure Due to Repricing One-Time Gains and Higher Provisions Expected Market Performance and Investor Expectations

NII and Profit Growth Likely to Remain Modest Amid Margin Stress

HDFC Bank, India’s largest private-sector lender, is expected to report muted single-digit growth in both net interest income (NII) and profit after tax (PAT) for the first quarter of FY26, with most brokerages projecting a 7 percent YoY increase. The bank is likely to report NII of around ₹31,885 crore, up from ₹29,837 crore a year ago, while PAT is expected at ₹17,385 crore, compared to ₹16,174 crore in Q1 FY25. The subdued growth reflects slower loan expansion and continued pressure on net interest margins (NIMs), as loans are repriced faster due to recent interest rate reductions.

Expected NII (Q1 FY26): ₹31,885 crore (up 7%)
Expected PAT (Q1 FY26): ₹17,385 crore (up 7.4%)
NII (Q1 FY25): ₹29,837 crore
PAT (Q1 FY25): ₹16,174 crore

Also Read : RBL Bank Q1 Net Profit Drops 46% YoY to Rs.200 Cr Despite Sequential Recovery

Loan Growth Slows While Deposits Surge Ahead

The bank’s average gross advances stood at ₹26 lakh crore as of June 30, 2025, reflecting a 6.7% year-on-year growth, while total deposits increased by 16.2%, reaching ₹27.6 lakh crore from ₹24 lakh crore in the year-ago quarter. Analysts believe this imbalance—faster deposit growth vs slower loan growth—could compress margins and reduce lending efficiency in the near term.

Loan Growth YoY: 6.7%
Deposit Growth YoY: 16.2%
Gross Advances (June 2025): ₹26 lakh crore
Deposits (June 2025): ₹27.6 lakh crore

Net Interest Margins Under Pressure Due to Repricing

Brokerages expect HDFC Bank’s net interest margin (NIM) to fall by 31 basis points YoY, settling at 3.4% for Q1 FY26, compared to 3.71% last year. This margin squeeze is attributed to the accelerated repricing of loans due to interest rate transmission and rising cost of funds. According to Kotak Institutional Equities, despite healthy deposit mobilization, the profitability outlook remains constrained due to pressure on core margins.

Estimated NIM (Q1 FY26): 3.4%
NIM (Q1 FY25): 3.71%
YoY Margin Compression: 31 basis points

One-Time Gains and Higher Provisions Expected

HDFC Bank is expected to record a one-time gain of ₹9,373 crore from the IPO of its subsidiary HDB Financial Services, which it may partially utilize to strengthen its provision buffer. Systematix Institutional Equities estimates that around ₹6,000 crore may be allocated as floating provisions, leading to higher sequential provisioning, although underlying asset quality remains broadly stable.

HDB IPO Gain: ₹9,373 crore
Expected Additional Provisions: ₹6,000 crore
Provisioning Trend: Likely to increase sequentially

Market Performance and Investor Expectations

Shares of HDFC Bank gained 9% in the April-June 2025 quarter, outperforming the 5% rise in the Nifty 50 index. Going into the results, analysts suggest that any deviation from expected trends in deposit growth, credit expansion, or margin performance could trigger sharp stock price reactions, given the narrow consensus range across brokerages. Kotak remains the most bullish on earnings, while Equirus forecasts the lowest growth among major firms.

Q1FY26 Result Date: July 19, 2025
Stock Performance (Apr–Jun): +9%
Benchmark (Nifty 50): +5%
Investor Focus Areas: Loan growth, deposit momentum, NIM trajectory, provisioning levels